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IFRS 1 — Meaning of effective IFRSs

Date recorded:

The Committee received a request to clarify the meaning of the word “effective” as used in IFRS 1.7.

The question arises from a perceived discrepancy between IFRS 1.7 and IFRS 1.BC 11. IFRS 1.7 states that “an entity shall use the same accounting policies in its opening IFRS statement of financial position and throughout all periods presented in its first IFRS financial statements. Those accounting policies shall comply with each IFRS effective at the end of its first IFRS reporting period, except as specified in paragraphs 13-19 and Appendices B-E.” The staff noted that this would imply that the entity has a choice between using a current version of an IFRS or adopting a new version early (where permitted to do so). However, IFRS 1.BC 11 states that “paragraphs 7-9 of the IFRS require a first-time adopter to apply the current version of IFRSs, without considering superseded or amended versions.” The staff noted that this would imply that the entity should use the new version of the IFRS.

IFRS 1.8 states that an entity “may apply a new IFRS”, and its example illustrates that if a new IFRS is not yet mandatory but permits early application, an entity is permitted, but not required, to apply that IFRS in its first IFRS financial statements. As such, the staff was of the view that the principle in IFRS 1 is to apply the old version that is still effective. If a new IFRS is not yet mandatory but permits early application, that IFRS is permitted, but not required, to be applied. This appears to conflict with IFRS 1.BC 11 and as such IFRS 1.BC 11 needs clarification.

The staff noted that the issue is widespread and significant divergent interpretations of the meaning of “effective” in IFRS 1 exists in practice. The staff also believe that the issue could be resolved efficiently within the confines of IFRS 1 and that the Committee would be able to reach a consensus on the issue on a timely basis. There is currently no IASB project on IFRS 1.

A Committee member reiterated that the principle in IFRS 1 is clear and that where there appears to be a conflict between the standard and the basis for conclusions, the standard is authoritative.

The Committee tentatively agreed with the staff’s recommendation to amend the Basis for Conclusions subject to drafting changes.

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